News & Views from 465 California Street

Expose the Real Culprits!

Clint Reilly

It is a sobering fact that a penny ante political scandal often provokes more outrage, elicits more ink and attracts more attention from law enforcement than a multi-billion-dollar financial scandal that wipes out the savings of millions of people.

Without trivializing any potential public corruption or graft, a few examples of misplaced outrage come to mind:

In 1958, Sherman Adams, Dwight Eisenhower’s chief of staff, was toppled after he accepted a vicuña overcoat from a Boston textile manufacturer.

Here in California, Secretary of State Kevin Shelley was driven from office by the twin accusations of abrasive language toward staffers and illegal campaign finance activity. Even as it became clear that he had nothing to do with the illicit campaign funds, a drumbeat of hysterical exposés about his behavior hounded him until he resigned.

In 2006, San Jose Mayor Ron Gonzales was indicted in a scandal involving garbage contracts. A judge later threw out all charges, saying that even if they were true, they weren’t illegal. But it was too late for Gonzales; his career, legacy and reputation had already been irreparably besmirched.

More recently, Oakland City Manager Deborah Edgerly was excoriated days before her long-planned retirement for intervening in a police action to protect a nephew, and for reportedly obtaining summer jobs for young family members. The breathless headlines have foghorned this low-voltage scandal around the Bay, even though the type of behavior in question has long been rampant throughout many city governments.

It is always reprehensible when elected officials and bureaucrats making $200,000 per year violate the public trust. But their transgressions are trivial when matched against massive violations of fiduciary trust by Wall Street barons earning $10 million-plus annual salaries and driving the U.S. economy.

Our country now faces its most daunting financial crisis since the Great Depression.

Greed and neglect of fiduciary duty have conspired to create a trillion-dollar mountain of debt that threatens to overwhelm our entire financial system. So far, only a taxpayer bailout led by the Federal Reserve and the U.S. Treasury has saved the system from collapse.

The loss of hundreds of billions this year by blue chip investment firms like Bear Stearns, Merrill Lynch and Lehman Brothers, and respected banks like Wachovia and Washington Mutual, is an epic scandal.

So, why are the mega-losses being accepted without outrage? As the country teeters closer toward full-blown economic crisis, the public and press find the mess more mind numbing than illegal.

Aside from a few bosses who were forced to eject from the executive suite with golden parachutes (ranging from $40 to $150 million), there have been no substantial Justice Department inquiries nor embarrassing high-profile indictments.

Writing in the Wall Street Journal, bond and financial markets expert James Grant marveled that the populist recriminations which accompanied past wipeouts are absent today:

“Have we not suffered at the hands of what used to be called ‘The Interests’? Have the stewards of other people’s money not made a hash of high finance? Did they not enrich themselves in the boom times only to pass the cup to us, the taxpayers, in the bust? Where is the people’s wrath?”

Although the mortgage lending scandal has many villains, one egregious example involves Fannie Mae and Freddie Mac, guarantors of $5 trillion in home mortgages. Taxpayers are now bailing out the mortgage giants while former executives who pocketed tens of millions in bonuses continue to play high-profile Washington roles.

In my experience, journalists often do not understand the arcane methods that financiers use to manipulate markets and make huge profits for themselves and their institutional employers. It’s easier to cover a political scandal where the public’s innate antipathy toward politicians and government can be easily exploited.

In fact, the true scandal is that making big money in America is too often considered a more socially valuable contribution than sacrificing greater pay for a life of public service.

Comments (9)

  • I think your rant against journalists and big money Wall Street scofflaws is right on.

    I do, however, take issue with your conclusion expressed in the last paragraph. “Sacrificing” public servants earned their low ranking next to journalists and lawyers, because they forget their original calling or, perhaps, are corrupted by the power they gain.

    The latest example is speaker Pelosi preventing a House vote on a crucial economic item that 70% of Americans favor. Why? She wants to save the world, according to a response given to ABC. On the Jon Stewart show she said: “The Republicans didn’t allow a vote on minimum wage for years either”, so this is tit for tat?

    Obama is exploiting the anti-corporation sentiment by excoriating Exxon and other big oils for making record profits and promising to take “some of their profits” to give every working family a $1000 emergency energy rebate. Obama is either poor at math or a master of deception. The rebate requires at least $120 billion; the annual net income of the five major oils combined was $80 billion. How does this modern day Robin Hood plan to implement his plan without confiscating more than they earned and thereby bankrupting an entire industry and with it the lifeblood of this countries economy?

    If you are looking for a true scandal, my God, just listen to the nonsense coming over the airwaves and print media without challenge. Thus I repeat, our public servants, journalists and lawyers richly earned and deserve the low ranking.

    Posted by: ErichK | August 5th, 2008 at 9:20 am

  • I read your column faithfully in the East County – Bay Area Times. Keep writing and I will continue to read and encourage all my friends to do the same.

    Posted by: Gloria | August 5th, 2008 at 9:41 am

  • First rate criticism.

    Posted by: Cavala | August 5th, 2008 at 9:54 am

  • I just read your story in the San Jose Mercury News. I agree with you that we should be outraged at Wall Street and their shenanigans. But it’s hard to point a finger at something you don’t understand. And that is how they like to keep us: confused.
    The best example is of their baffle ‘em with BS campaign is how Greenspan used to speak in front of Congress. Everybody would come away going “huh?”. That’s not how Greenspan speaks normally. It was a put on.

    I am starting to get a handle on the how the financial world is really run because I’m half way through the book “Web of Debt” by Ellen Hodgson Brown, J.D. It explains how there really is a conspiracy going on to control the masses with debt and manipulation. It’s much easier than holding a war.

    But it’s a 500+ page book that most people don’t have time to wade through. We need to somehow get the message out in a condensed form that could still be understandable considering the complexity. One person couldn’t be the champion of a get the word out campaign–that might get him killed. We need a mass grassroots uprising and I think it has to come via the internet from many points at once.

    Posted by: MG | August 5th, 2008 at 10:18 am

  • I was pleased to see the article in today’s CCTimes. I think that you underestimate the anger and outrage of the general population over the blatant manipulation of today’s financial enterprise. My discussions with family, peers and associates is not the lack of outrage but their inability to take corrective action other than effecting change in the political spectrum … replace their political representatives. Even this course of action is terribly ineffective. The Federal, state and local governments take a hands-off approach when it comes to the boardroom. The US economy driver, business, is the foundation of the country and continues to be sacrosanct. Even established oversight committees (the FED) dare not step into the boardroom. They only regulate process and even that occurs after the horse has left the barn.

    My point is don’t confuse inability for the common person to identify a course of action with lack of outrage. In your political position, one of influence, you have the ability to identify and interface with the proper political avenues and people that can affect a difference. Let’s all understand that any changes now effected will only be corrective going forward. Those who have abused, and currently do abuse, the system apparently will be exempt from any corrective action implemented today.

    The real question is what corrective action should be taken (and by whom) to reign in boardroom compensation practices. I recommend that a Federal committee be empowered to review boardroom compensation practices and establish guidelines the must be adhered to in executive compensation contracts. One of the more obvious guidelines would be to eliminate bonus payments to executives which result in non-profitability creating dissension among employees (this would include educational institutions also). Another obvious guideline would be scrutiny of severance packages and retirement compensation. I am not suggesting that government be injected into the boardroom and become an acting director, but I am suggesting that controls be enacted since business has clearly demonstrated that it cannot police itself.

    Posted by: Dean | August 5th, 2008 at 1:03 pm

  • THANK YOU! It’s about time someone called a spade a spade! People let themselves be angered by the relatively insignificant scandals even as they get fleeced by the big ones. It’s like the guys running the shell game on the street corner: They distract you with the moving cups while their cohorts steal your wallet!

    Posted by: Tabitha Evans | August 6th, 2008 at 12:17 am

  • You undoubtedly saw the NYT story on homeowners with good
    credit history who are behind in payments on mortgage. If not, here
    is the URL.

    Posted by: Ed | August 6th, 2008 at 9:12 am

  • Have to disagree with you on Kevin Shelley…

    He was only lamely and incompletely investigated by the Joint Legislative Audit Committee. This was done deliberately as the Democrats in charge of said committee wanted to protect Mr. Shelley…

    There is still between $1.5 and 3 million in federal tax dollars “missing” which were under Shelley’s charge to support the “Help America Vote Act” or HAVA.

    If he didn’t do anything wrong, then why did he resign? I mean, he was considered a viable candidate for Governor until this happened. Shouldn’t he have been able to handle a little “unjustified” heat then and show he has the stomach to be a Governor?

    Posted by: Jay Gould | August 6th, 2008 at 10:28 am

  • I look forward to your weekly articles and especially thought you hit the nail on the head with this one.
    Keep up the good work.

    Posted by: Hardy | August 6th, 2008 at 12:00 pm

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